Strategic management refers to a process involving evaluation, decision making and taking action to ensure an organization maintains a competitive edge with reference to its competitors. The process involves the analysis of the company’s goals, vision, mission and strategy statements, the internal and external factors that contribute to effective competition and the evaluation of the success of these factors (Dess and Marilyn, 2005).
It is described as an analysis of elements associated with the organization’s external environment, which includes; the competitors, the customers and also its internal environment such as the employees and management so that proper administration practices are initiated. It aims at ensuring that the organizational mission and goals are achieved through aligning the decisions and actions of both individuals and teams to the current and the future organizational objectives. It is a continuous and systematic process that enables the organization to fit in its environment; harmonization of personal to organizational commitments characterizes it. Importantly, strategic management ensures that the decisions made are beneficial to the organization. It is thus an important decision making tool in any organization.
Unlike management, which is the organization and coordination of activities to achieve stated goals by planning, controlling, staffing, and organization, strategic management is holistic in nature (Northouse, 2013). Other differences that exist between management and strategic management lie in the principles applied in each. While management is mainly based on the 12 principles proposed by Henri Fayol, strategic management relies on principles of acquiring competitive advantage (Wren and Breeze, 2002).
The concept of strategic management is divided into 3 segments i.e. goals, strategy, and evaluation (Chew and Gottschalk, 2009). The purpose of laying down the business goals is for the business owners to determine where the business intends to be. This is done in consideration of the business type, client base and the available resources at the time of analysis.
The strategy segment involves the analysis and presentation of an appropriate plan of action that can be used to achieve the set objectives. The last segment involves the evaluation of both the goals and the strategy laid out. This is to determine whether the strategy available can be beneficial in achieving the set goals.
Strategic Management Models
Several models exist for strategic management. Some of these models include: the basic model, alignment model, goal based model, self-organizing model, Scenario model, Glueck’s model, Korey’s model, Andrew’s model and Schematic model (Barnat, 2014, p.7). Several similarities exist between these models although no single model is perfect (Denecker, 2011). Companies therefore generally adopt any model and modify it to fit their own objectives. However, all the models suggest that strategic development in any organization must include the following (Denecker, 2011):
- Evaluation of the company’s mission, vision and values
- Internal and external environment analysis using tools such as PEST and SWOT analyses
- Factor determination and evaluation – this takes into consideration factors such as market size, product demand and market margins
- Evaluation of primary factors affecting success
- Establishing the competitive advantage
- Application of Porter’s five forces
Any chosen model can be applied in the marketing, procurement, human resources, information systems or the production department of any business (Denecker, 2011).
Strategic Management Principles
According to Porter, effective operations alone are not sufficient in achieving and maintaining competitive advantage (Dess and Marilyn, 2005). It has to be combined with operational strategies that are based on strategic management. According to Chew and Gottschalk (2009), an organization has to base its operations on the following key factors in order to maintain competitive advantage:
- It must start with a right goal based on achieving a strong return on investment. Any further decision or action taken should be in compliance with the goal demands.
- It must possess a definite direction – according to Henri Fayol, a unity of direction is one of the key principles of management (Wren and Breeze, 2002). It is similarly considered as a primary factor in strategic management. In order to achieve the set objectives, it must be clear how the various organizational entities work together for the achievement of the set objectives.
The principles applied in strategic management are aimed at maximizing profits from the business by maintaining a competitive edge over the competitors. The following nine principles are commonly acceptable as the basic principles for the achievement of company strategies (Fortna, 2014):
Differentiation – this begins with a definition of the organization’s competitive strengths. The strengths are then bundled and every action taken to ensure the strengths are revealed. In order to differentiate, three main positioning strategies can be used. These include; variety, needs, and access based positions. The variety based position offers unique value for a variety of production the other hand; the needs based differentiation strategy aligns the customer needs to the company supplies while the access based positioning ensures that the customer has access to limited products (Chew and Gottschalk, 2009).
Aiming at growth – an organization can ensure constant granular growth through factors such as mergers and acquisitions, industry gains and market share gains. To achieve growth, the organization has to identify opportunities and strategize on how to take advantage of them (Fortna, 2014).
Being insightful – This refers to making use of acquired information and noted opportunities in a manner that can result in competitive advantage. A most reliable source of insightful information is customer feedback. An intersection of factors, which include product type, customers, location, services and delivery channels provides an opportunity for knowing market hot spots.
Risk management – decisions made should be such that the risks at hand are predicted before any major decision is made. The risks taken should be worth the opportunity costs associated. This is by ensuring that the risk taken is driven towards profit increment. However, in doing this, the organization is to adapt itself to the changing market conditions. To manage risks such that they only result in profit increase without sabotaging the organization’s adaptability to change, factors that must be taken into consideration include research into opportunities, experimentation prior to investment, continuous evaluation of results, decisions based on insight rather than faith, and avoiding actions that do not meet the organization’s expectations (Fortna, 2014).
Reduction of bias – biases that often mar the profit optimization strategies in business include risk aversion, pursuance of personal interest, and excessive confidence in personal abilities, herding mentality, and misinformation. It is of great essence to minimize biases hence giving an opportunity for market infiltration into the organization. Some actions that may be taken in order to minimize bias include: engaging diverse opinions in the decision making group, encouraging openness in idea delivery, developing wide reaching goals to prevent risk aversion, asking for opposing ideas and opinions to reduce the effects of over-optimism, and ensuring clarity in giving information to reduce the chances of misinformation (Fortna, 2014).
Recognizing that there has to be an opportunity cost in every decision – Every decision made has the most reasonable decision left, and this decision has a probable cost. It is important to note that there must always be a next best decision and that a trade-off must be made so as to achieve the set objectives within the confines of the available resources. The first step is to identify where, when and how to compete favorably. This is followed by a reasonable allocation of resources to ensure that the set goals are achieved. The aim of this is to maintain focus in the operations of the organization. In most cases, this may involve retracting funds from unprofitable investments and poorly performing causes (Fortna, 2014). However, it is important to ensure that while making a trade-off, a path is not ignored only because it offers the highest resistance. The trade-off made should be based on facts such as profitability.
Maintaining an active organization – agility in the organization is also one of the characteristics of successful investments. An active organization ensures that people are always focused on achieving the organization’s goals. This may involve delegation of some responsibilities particularly in big organizations. Through agility, the organization will be able to receive vital information as soon as it is out as well as to make decisions fast enough so as to earn the new market opportunities.
Strategic leadership – the management should be aligned with the company’s objectives, be clear in communication, and be open to reinforcing behaviors that are open to change, new ideas and new strategies in operation. Of high importance is unity in the leadership bodies. This will show the entire work force that the goal of the organization is unified. Apart from this, it may also help to reinforce the unity of command, which is essential in effective management (Wren and Breeze, 2002).
Encourage change – this can be achieved through capacity building, role modeling, reinforcing non-monetary mechanisms, and transformational personal stories (Kinicki and Williams, 2013). As the market is dynamic, it is important to create an organization that is open to change, new ideas and variety. At the same time, practices that encourage change also motivate workers hence increased productivity.
Tools Required for Successful Strategic Management
Strategic management, historically, has been an expensive process; however, the high cost reduced significantly since the advent of tools that help managers. The tools are categorized into three; organizational strategy development tools, strategic planning tools and control techniques. For instance, gap analysis, industry analysis, product-market matrix, PEST and SWOT analysis are under the category of organizational strategy development tools (Barnat, 2014, p.10). The aim of organizational strategy development tools is to enable the management to produce a performance strategy that takes advantage of the prevalent conditions to maintain a competitive advantage hence maximize profits. Gap analysis ensures identification of customer needs; industry analysis helps to determine the market characteristics such as opportunities, profitability, e.t.c. Product market matrix aids in determination of the product capabilities in relation to the prevailing market conditions; PEST analysis helps to understand the operational environment in political, environmental, socio-economic, and technological aspects; SWOT analysis helps to understand both internal and external organizational factors such as strengths, weaknesses, opportunities, and threats.
On the other hand, strategic planning tools assist the organization in laying down its operational strategies. The most common tools include the organization’s vision statement, charts, affinity diagrams and digraphs showing interrelationships. The vision statement gives a sense of direction; the charts show possible progress and confirm whether the organization’s goals are being achieved or not; the affinity diagrams are used to combine several potential projects into a single deliverable objective; the digraphs show projects that are being carried out, the encountered problems and the achieved progress (Denecker, 2011).
Moreover, control tools aim at ensuring that real results conform to the envisaged results. The results are financial and non financial, therefore the control tools are classified into two. Examples of financial control tools include ratio analysis, and accounting audits, while non-financial control tools include; inventory and quality control. Ratio analysis helps to determine the relationship between the intended results and the actual results.
Strategic management is an aspect of immense importance in any organization. Since it involves the organization’s vision, mission, objectives and strategies, no organization can run successfully without it. It is therefore understandable why every organization develops its own strategic policies for achieving a competitive edge over other companies. Principles of differentiation, growth orientation, and being insightful among others provide a sustainable platform for achieving the much needed competitive advantage. These principles are in line with principles of general management such as unity of purpose, and unity of command. The diligent practice of these principles depends heavily on the strategic management tools available.
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